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BRK.

Berkshire Hathaway NYSE:BRK.A Stock Report

Last Price

US$406.47k

Market Cap

US$591.3b

7D

0.5%

1Y

-2.0%

Updated

30 Sep, 2022

Data

Company Financials +
BRK.A fundamental analysis
Snowflake Score
Valuation3/6
Future Growth4/6
Past Performance2/6
Financial Health5/6
Dividends0/6

BRK.A Stock Overview

Berkshire Hathaway Inc., through its subsidiaries, engages in the insurance, freight rail transportation, and utility businesses worldwide.

Berkshire Hathaway Inc. Competitors

Price History & Performance

Summary of all time highs, changes and price drops for Berkshire Hathaway
Historical stock prices
Current Share PriceUS$406,470.00
52 Week HighUS$544,389.26
52 Week LowUS$395,202.25
Beta0.94
1 Month Change-3.52%
3 Month Change-2.26%
1 Year Change-2.03%
3 Year Change30.06%
5 Year Change44.65%
Change since IPO4,612.70%

Recent News & Updates

Sep 22

Berkshire Hathaway Performing Well In This Down Market

Summary Berkshire Hathaway is performing well in this down market and outperforming the S&P 500 by 10% this year. Berkshire is trading at a similar Price/Earnings ratio as the S&P 500 without any consideration of "look through" earnings from the equity portfolio. At $270 and a 1.25x price/book value, Berkshire stock is at valuation levels where they aggressively repurchased shares in the past. In my early 2022 writing on Berkshire Hathaway (BRK.A) (BRK.B) I predicted an outperformance of 15% versus the market, as measured by the S&P 500. My prediction is on track, but wow, what a path to get there! Data by YCharts After peaking at $362/share earlier this year, Berkshire has declined with the rest of the market, yet it is still outperforming the S&P 500 by over 10%. As 2022 continues on, I believe Berkshire is well-positioned to continue outperforming. Berkshire's Operating Businesses - Are They Inflation-Resistant? Berkshire posted excellent operating earnings in the second quarter, which got little fanfare, likely because of the depressed broader market and the $53 billion in mark-to-market losses in the equity portfolio. Berkshire Q2 Earnings Release Even if we back out "Other" which included around a billion in foreign currency gains, this quarter showed a clear, broad based improvement over 2021 despite what most would consider to be a more difficult operating environment. Going forward, I believe Operating Earnings will continue to be strong because Berkshire's businesses tend to be inflation-resistant. For those that have read Buffett extensively, it's one of the key things he looks for in a business. Perhaps his most repeated quote on the subject is the following: The single-most important decision in evaluating a business is pricing power. If you've got the power to raise prices without losing business to a competitor, you've got a very good business. And if you have to have a prayer session before raising the price by a tenth of a cent, then you've got a terrible business. I've been in both, and I know the difference. While there is no quantitative way (at least that I know of) to prove this, I believe the collection of Berkshire's businesses will prove to be more inflation-resistant than the average S&P 500 company. Berkshire Hathaway's Recent Price Action And Current Book Value Shareholder's equity as of the Q2-2022 10-Q was $461 billion, compared to a current market capitalization of $598 billion. That puts Price/Book at 1.3x using last quarter's numbers. But last June ended near the lows for many of Berkshire's holdings, particularly Apple and the banks. Most are up since then. Author Berkshire's top 5 holdings are up $22 billion ($17.4 billion when adjusting for deferred taxes) since June 30th. Add another $8 billion in operating earnings, and we're closer to a 1.25x multiple. Berkshire has been cheaper at points over the last few years, including much of 2020, but this is towards the lower end of its recent valuation range. Berkshire earned $16.3 billion in the first half of this year. I think a repeat performance is likely in the back half, driven by increased investment income and seasonal strength in the energy business. Let's round down and assume $32 billion in earnings for the year. For the full year, that puts Berkshire at a ~18.7x Price/Earnings ratio, even ignoring the "look through" earnings of Berkshire's substantial equity holdings! Compare this to Morgan Stanley's (MS) latest earnings estimates for the S&P 500, which they just decreased. (I think there is further downside to these numbers, but let's go with them.) 2022: $220 (from $225 prior) 2023: $212 (from $236 prior) 2024: $226 (from $237 prior) At 3800 on the S&P 500, this implies a forward multiple around ~17.3x for the index, with almost no growth slated for the next 3 years. There has been much ink spilled over the many different methodologies on how to properly value Berkshire, but most all of them give some value to the equity book beyond the dividends that show up in Operating Earnings. But Berkshire, with its huge cash buffer, is barely more expensive than the index just based on operating earnings. Even with conservative treatment of the equity investments, Berkshire seems significantly "cheaper" than the S&P 500. Cash Is No Longer Trash; Cash Is King. Berkshire was very active purchasing equities earlier this year, purchasing $40 Billion in three weeks in Q1 by initiating a large stake in Occidental (OXY), Citigroup (C), and HP, Inc. (HPQ) while adding to stakes in Activision Blizzard (ATVI) and Chevron (CVX). As a result, Cash and U.S. Treasury bills dropped from $143.9B at year-end to $105.4B on June 30th (still a substantial amount.) Data by YCharts An abundance of cash on the balance sheet earning almost zero has been a drag on Berkshire's results for the past several years when the Fed was cutting rates to zero. This headwind has now turned into a tailwind, as lower yielding debt matures and Berkshire can roll into 1-year paper yielding 4%. Some may argue that Berkshire is still "losing" to inflation this way. Personally, I'd rather them "lose" to inflation earning a 4% nominal yield and wait for bargains to appear than get pushed into risk assets because cash is yielding nothing. Beyond that, Berkshire has $119 billion in "Notes Payable and other borrowings" most of which is at fixed rates. In aggregate, higher interest rates are a win for them. Berkshire Repurchases Buffett and company have stayed true to their word on repurchases, only doing so when they believe shares are trading at a significant discount to intrinsic value. They bought back significantly when the shares were in the $270-280 range, slowed their purchases above $300, and stopped entirely in April/May when the price spiked.

Sep 08

Berkshire Hathaway: Mr. Green

Summary Over the longer term, Berkshire Hathaway hasn't kept pace with the Nasdaq, but it's done fine versus the S&P 500. Berkshire Hathaway Energy or "BHE" is an interesting and profitable business, but its upgrades and reinvestments are draining a whopping $18 billion through 2030. Overall, both BNSF and BHE are capital intensive, but one of them offers immediate gratification, whereas the other will take many more years to bear dividend fruits.

Aug 17

Tracking Warren Buffett's Berkshire Hathaway Portfolio - Q2 2022 Update

Berkshire Hathaway's 13F stock portfolio value decreased from ~$364B to ~$300B. Their largest three holdings are at ~60% of the entire portfolio. Berkshire Hathaway increased Occidental Petroleum, Ally Financial and Paramount Global while decreasing STORE Capital and General Motors. This article is part of a series that provides an ongoing analysis of the changes made to Berkshire Hathaway’s 13F stock portfolio on a quarterly basis. It is based on Warren Buffett’s regulatory 13F Form filed on 8/15/2022. Please visit our Tracking 10 Years Of Berkshire Hathaway's Investment Portfolio article series for an idea on how his holdings have progressed over the years and our previous update for the moves in Q1 2022. During Q2 2022, Berkshire Hathaway’s (BRK.A) (BRK.B) 13F stock portfolio value decreased ~18% from ~$364B to ~$300B. The top five positions account for ~74% of the portfolio: Apple Inc., Bank of America, Coca Cola, Chevron, and American Express. There are 45 individual stock positions many of which are minutely small compared to the overall size of the portfolio. Warren Buffett’s writings (pdfs) are a treasure trove of information and are a very good source for anyone starting out on individual investing. Note 1: In Q2 2022, Berkshire Hathaway repurchased ~3.62M Class B Equivalent Shares for a total outlay of ~$1.03B. The average price paid was ~$284. Book Value as of Q2 2022 was ~$213 per share. So, the repurchase happened at ~133% of Book Value. In July 2018, Berkshire had announced a plan to make their re-purchase criteria to be more flexible – instead of the 120% of Book Value criteria, Buffett & Munger had to agree that Berkshire was trading below intrinsic value. The Class B shares currently trade at ~$307. Note 2: Berkshire Hathaway also has a 225M share position in BYD Company at a cost-basis of ~8 HKD per share. It currently traded in Hong Kong at ~285 HKD. Note 3: The 2021 AR listed the following investments that are not in the 13F report – 5.6% ownership stake in ITOCHU Corporation (ITOCF) at a cost-basis of $23.52, 5.5% ownership stake in Mitsubishi Corporation (MSBHF) at a cost-basis of $25.72, and 5.7% ownership stake in Mitsui & Company (MITSF) at a cost-basis of $17.29. ITOCF, MSBHF, and MITSF currently trade at $27.93, $31.80, and $22.74 respectively. It was disclosed in August 2020 that Berkshire had built ~5% stakes in five Japanese trading businesses: ITOCHU, Marubeni, Mitsubishi, Mitsui, and Sumitomo. Note 4: Since November 2015, Warren Buffett is known to own ~8% of Seritage Growth Properties (SRG) at a cost-basis of $36.50 in his personal portfolio. It currently trades at $13.68. SRG is an REIT spinoff from Sears that started trading in July 2015. New Stakes: None. Stake Disposals: Verizon Communications (VZ): The VZ position was built in H2 2020 at prices between $54 and $62. Last quarter saw the position almost eliminated at prices between ~$51 and ~$55. The remainder stake was disposed this quarter. The stock currently trades at $45.80. Royalty Pharma plc (RPRX): RPRX stake was purchased in Q3 2021 at prices between ~$36 and ~$42. There was a roughly one-third selling in Q4 2021 at prices between ~$35 and ~$42.50. Last quarter saw the position reduced by another ~85% at prices between ~$37.50 and ~$42.50. The remainder stake was eliminated during the quarter. The stock is now at $44.35. Stake Increases: Apple Inc. (AAPL): AAPL is currently the largest 13F portfolio stake by far at ~41%. It was built between Q1 2016 and Q1 2018 at a cost-basis of ~$35 per share. Since then, the activity has been minor. The stock currently trades at ~$173. Note: Apple stock split 4-for-1 last August. The prices quoted above are adjusted. Berkshire has a ~5.6% ownership stake in the business. Chevron Corp (CVX): CVX is a large (top five) 7.79% of the portfolio position purchased in Q3 2020 at prices between ~$72 and ~$91. Q1 2021 saw a ~50% selling at prices between ~$85 and ~$112 while in Q3 2021 there was a ~25% stake increase at prices between ~$94 and ~$106. That was followed with another one-third increase next quarter at prices between ~$102 and ~$119. Last quarter saw a whopping ~315% stake increase at prices between ~$119 and ~$171. The stock currently trades at ~$156. There was a marginal further increase this quarter. Note: Berkshire likely avoided disclosing these stakes in the Q3 2020 13F filing by making use of the “section 13(F) Confidential Treatment Requests”. An amendment filed later disclosed the activity. Occidental Petroleum (OXY): Berkshire made a $10B investment in OXY in April 2019 through 100,000 preferred shares that has a liquidation value of $100,000 per share. Those shares pay 8% dividend, and the transaction came with warrants to purchase 83.86M shares at $59.62. Last quarter, Berkshire purchased ~136.4M shares at prices between ~$31 and ~$59 per share. That was followed with a ~22M share net-increase this quarter at prices between ~$57 and ~$60. The stock currently trades at $63.51. Note: Regulatory filings since the quarter ended show them owning 188.37M shares. This is compared to 158.5M shares in the 13F report. The increased happened at prices up to ~$60.40 per share. Including warrants, Berkshire owns ~27% of the business (~272M shares). Activision Blizzard (ATVI): ATVI is a 1.77% of the portfolio position established in Q4 2021 at prices between ~$57 and ~$81. Last quarter saw the stake increased by ~340% at prices between ~$63 and ~$82. This quarter also saw a ~6% further increase. The stock currently trades at $80.92. Note: Microsoft (MSFT) is acquiring Activision Blizzard in a $95 per share all-cash deal announced in April. Paramount Global (PARA): PARA is a 0.64% of the portfolio position purchased last quarter at prices between $27.85 and $38.48 and it is now just below the low end of that range at $27.20. There was a ~14% stake increase this quarter at prices between ~$24.25 and ~$38. Celanese Corp (CE), McKesson Corp (MCK), Markel Corp (MKL), and Ally Financial (ALLY): These four positions were built over the last two quarters. The 0.36% CE stake was purchased at prices between ~$118 and ~$174 and the stock currently trades at the low end of that range at ~$118. MCK is a 0.20% of the portfolio position established at prices between ~$245 and ~$336 and it is now at ~$374. The 0.20% MKL stake was built at prices between ~$1187 and ~$1504 and it now goes for ~$1264. The 0.33% ALLY stake saw a whopping ~235% increase this quarter at prices between ~$32 and ~$53. The stock currently trades at $36.90. Stake Decreases: U.S. Bancorp (USB): The 1.84% USB stake has been in the portfolio since 2006. The original position was tripled during the 2007-2009 timeframe. It was then kept relatively steady till Q2 2013 when ~17M shares were purchased at prices between $32 and $36. H1 2018 had seen a ~16% increase at prices between $49 and $58 and that was followed with a ~25% increase in Q3 2018 at prices between $50 and $55. The stock is now at $49.30, and Berkshire’s cost-basis is ~$38. They control ~9.5% of the business. There was a ~5% trimming this quarter. Kroger Company (KR): KR is a 0.83% of the portfolio position established in Q4 2019 at prices between $24 and $29. The five quarters through Q3 2021 had seen a ~225% stake increase at prices between ~$30 and ~$40. The stock currently trades at $49.08. Last two quarters have seen a ~15% selling at prices between ~$43.50 and ~$62. Note: Berkshire’s ownership stake in Kroger is ~7.2%. General Motors (GM): GM is a 0.56% of the 13F portfolio position that was first purchased in Q1 2012 at prices between $21 and $30. By Q3 2017, the position size had increased by around six-times (10M shares to 60M shares). Q4 2017 saw a reduction: ~17% selling at prices between $40.50 and $46.50. There was a ~38% stake increase in Q4 2018 at prices between $30.50 and $38.50. H1 2021 saw a ~17% selling at prices between $40.50 and $64. That was followed with a ~15% reduction this quarter at prices between ~$31.50 and ~$43. The stock currently trades at $38.99. Berkshire’s cost-basis on GM is ~$31. STORE Capital (STOR): The STOR stake was established in Q2 2017 in a private placement transaction at $20.25 per share. Q2 2020 saw a ~30% stake increase at prices between $14.50 and $26.50. Last quarter saw the stake sold down by ~40% at prices between ~$28.75 and ~$34.60. That was followed with a ~55% reduction this quarter at prices between ~$25 and ~$31. The stock is now at $29.22. Kept Steady: Bank of America (BAC): Berkshire established this large (top three) ~11% of the portfolio position through the exercise of Bank of America warrants. The warrants had a strike price of $7.14 compared to the current price of $36.64. The cost to exercise was $5B and it was funded using the $5B in 6% preferred stock they held. There was a ~30% stake increase in Q3 2018 at prices between $27.75 and $31.80. Since then, the activity has been minor. Note: Berkshire’s overall cost-basis is ~$14 and ownership stake is at ~13%. American Express (AXP) and Coca-Cola (KO): These two very large stakes were kept steady during the last ~9 years. Buffett has said these positions will be held “permanently”. Berkshire’s cost-basis on AXP and KO are at around $8.49 and $3.25 respectively and the ownership stakes are at ~20% and ~9.2% respectively. Kraft Heinz Co. (KHC): KHC is currently a fairly large position at 4.14% of the portfolio. Kraft Heinz started trading in July 2015 with Berkshire owning just over 325M shares (~27% of the business). The stake came about because of two transactions with 3G capital as partner: a ~$4B net investment in 2013 for half of Heinz and a ~$5B investment for the acquisition of Kraft Foods Group in early 2015. Berkshire’s cost-basis on KHC is ~$30 per share compared to the current price of $38.83. Moody’s Corp. (MCO): MCO is a 2.24% of the 13F portfolio stake. It is a very long-term position and Buffett’s cost basis is $10.05. The stock currently trades at ~$322. Berkshire controls ~13% of the business. Citigroup Inc. (C) and HP Inc. (HPQ): The 0.85% of the portfolio stake in Citigroup was purchased last quarter at prices between ~$53 and ~$68 and it is now near the low end of that range at $54.18. HPQ is a 1.14% of the portfolio stake established last quarter at prices between ~$34 and ~$40 and the stock currently trades near the low end of that range at $34.50. Bank of New York Mellon Corp (BK): BK is a ~1% of the 13F portfolio stake. The bulk of the original position was purchased in Q2 2012 at prices between $19.50 and $25. Recent activity follows: 2017 saw a ~180% increase at prices between $43.50 and $55 while 2018 saw another one-third increase at prices between $44.50 and $58.50. The stock currently trades at $45.03. Berkshire’s cost-basis on BK is ~$46 per share and ownership stake is 8.3%. DaVita Inc. (DVA): DVA is a ~1% of the portfolio position that was aggressively built over several quarters in the 2012-13 timeframe at prices between $30 and $49. The stock currently trades at ~$93 compared to Berkshire’s overall cost-basis of ~$45 per share. Q3 2020 saw a ~5% (2M shares) selling at $88 per share. Note: Berkshire’s ownership stake in DaVita is ~40%. Liberty SiriusXM Group (LSXMA) (LSXMK): The tracking stock was acquired as a result of Liberty Media’s recapitalization in April 2016. Shareholders received 1 share of Liberty SiriusXM Group, 0.25 shares of Liberty Media Group and 0.1 shares of Liberty Braves Group for each share held. Berkshire held 30M shares of Liberty Media for which he received the same amount of Liberty SiriusXM Group shares. There was a ~40% stake increase in Q2 2017 at a cost-basis of ~$40 per share. Q2 2020 saw another ~27% stake increase primarily thru the $25.47 per share rights offering the company announced last May. Last November, Berkshire exchanged their 43.66M share stake in Sirius XM for 5.35M additional shares of Liberty Sirius XM Class A tracking stock in a transaction with the parent business. The stock currently trades at ~$45, and the stake is at 0.76% of the portfolio. VeriSign Inc. (VRSN): VRSN was first purchased in Q4 2012 at prices between $34 and $49.50. The position was more than doubled in Q1 2013 at prices between $38 and $48. The buying continued till Q2 2014 at prices up to $63. The stock currently trades at ~$204 and the position is at 0.71% of the portfolio (~10% of the business). Charter Communications (CHTR): CHTR is a 0.60% of the portfolio position. It was established during the last three quarters of 2014 at prices between $118 and $170. In Q2 2015, the position was increased by ~42% at prices between $168 and $193 and that was followed with another ~21% increase the following quarter at prices between $167 and $195. The six quarters thru Q4 2018 had seen a combined ~25% selling at prices between $250 and $395 and that was followed with a ~20% reduction in Q1 2019 at prices between $285 and $366. H2 2021 saw another ~25% reduction at prices between ~$605 and ~$821. The stock currently trades at ~$483 compared to Berkshire’s cost-basis of ~$178. Aon plc (AON): AON is a 0.39% of the portfolio position established in Q1 2021 at prices between ~$202 and ~$234. Next quarter saw a ~7% increase at prices between ~$230 and ~$259. The stock currently trades at ~$301. Amazon.com (AMZN): AMZN is a 0.38% of the portfolio stake established in Q1 2019 at prices between ~$75 and ~$91 and increased by ~11% next quarter at prices between ~$85 and ~$98. The stock currently trades at ~$145. Note: The prices quoted above are adjusted for the 20-for-1 stock split in June. Snowflake Inc. (SNOW): SNOW had an IPO in September 2020. Shares started trading at ~$229 and currently goes for ~$167. Berkshire acquired ~2% of the business at the IPO price of ~$120 per share. T-Mobile US (TMUS): TMUS is a small 0.23% of the portfolio stake purchased in Q3 2020 at prices between ~$104 and ~$119 and more than doubled next quarter at prices between ~$110 and ~$135. It currently trades at ~$147.

Aug 07

Berkshire Hathaway: Back To Basics

The stock buying binge (including Berkshire buybacks) of 1Q is now back to more normal levels. We have to focus on the operating companies again. Operating company earnings are holding up well despite some margins starting to get compressed. My intrinsic value estimate hasn't changed much in the past year, but at $330 per B share, it's still 13% over the current price. Buffett The Buyer Takes A Break Berkshire Hathaway (BRK.A) (BRK.B) created some exciting buzz in 1Q, spending over $50 billion on new stock investments in addition to about $3 billion of buybacks. I wrote about this in my last Berkshire article, "Buffett The Buyer Is Back". With 2Q results now out, we see that Berkshire has reverted to its typical low level of investment activity. The company made about $6.2 billion of new stock purchases and sold about $2.3 billion. Buyback activity also declined to about $1 billion, probably due to elevated share prices at the start of the quarter. Berkshire did not make any buybacks until June, at an average price of $276.75 per B share. Buybacks appear to have continued into July at slightly higher prices, with the company spending about another $0.5 billion through 7/23 based on the share count on the front page of the 10-Q. The net investment and buyback activity about balances Berkshire's free cash flow of $4.8 billion in 2Q. The balancing is also consistent with the negligible change in insurance float. After putting more of the cash pile to work on dividend-earning investments in 1Q, Buffett now appears satisfied to earn the higher interest rates now available on Berkshire's remaining $101 billion cash balance. With investment activity back to normal, we have to turn to Berkshire's operating company results to get a good view of performance. Overall, earnings have held up well, but margins are starting to get compressed. Demand could be weakening in some businesses as well. My intrinsic value estimate of the company has not changed much in the past year, but thanks to the pullback in the share price, it now seems undervalued by around 13%. But before I get to that, let's look at operating business performance. Insurance Insurance investment income is doing very well, up 56% from 2Q 2021 thanks to both the new stock investments in 1Q as well as higher interest rates on the cash balance. Underwriting performance is more mixed. Due to the rapidly changing inflation and GDP picture, sequential changes from 1Q to 2Q might tell us more, so that is the way I will present the results. The year-on-year comparisons are in the 10-Q if you want to see them. GEICO makes up over half of Berkshire's insurance business. Unfortunately, it continues to struggle with high car and parts costs, resulting in higher costs per claim. They are managing underwriting expenses well, but the cost of claims is the big drag, taking the combined ratio up 3.1 percentage points from 1Q resulting in a bigger underwriting loss. Also concerning is that while premiums earned grew slightly, premiums written were down considerably, which may not bode well for premiums earned in future quarters. Author Spreadsheet As we have seen in recent quarters, Berkshire's other primary insurance business continues to be the best performer of the group. The division improved its underwriting profit and continues to grow premiums written as well as earned. The reinsurance business has lumpy results, so we can't read too much into quarterly fluctuations. However, economic conditions appear to be a key driver of the better underwriting performance this quarter. A stronger dollar reduces the cost of foreign claims and higher interest rates reduce the cost of future year claims when discounted to present value. Author Spreadsheet Putting it all together, I have to downgrade my rating of the insurance business because of the worse performance at GEICO which now deserves a worse than average C-. The other primary businesses deserve an A+ for growth and reinsurance deserves an A for its long-term disciplined performance. Grade: B- BNSF Railroad BNSF is facing reduced volumes this year from supply chain issues and a slower economy. Berkshire Hathaway 2Q 2022 Form 10-Q The good news is that the railroad has been able to increase prices to more than cover their much higher fuel costs. While the operating expense ratio increased year-on-year, it did come down sequentially. Author Spreadsheet BNSF could still stand to improve cost performance relative to peers, but it is on its way and earns an upgrade. Grade: B+ Berkshire Hathaway Energy BHE is seeing gross margin and operating cost pressures this year as well, leading to lower operating income. These short-term issues can be overlooked when considering the smart strategic moves Berkshire has made including buying long-distance natural gas pipelines and a 25% interest in an LNG terminal from Dominion Energy (D). The utility also continues to invest heavily in wind-powered generation. Whatever you think of renewables, the wind assets enjoy a production tax credit which makes the overall tax rate for BHE even more negative this year than last. The tax credit is enough to swing the overall income for BHE to an increase despite the lower operating income. Author Spreadsheet BHE may be in line for more subsidies through the Inflation Reduction Act. The company owns 25% of the Quad Cities plant with the balance owned and operated by Constellation Energy (CEG). Nuclear power also qualifies for production tax credits under the Act, although it is not certain how the Act's 15% corporate minimum tax provision would impact BHE. The utility is also piloting small modular reactor technology in Wyoming in partnership with Bill Gates. Finally, Berkshire recently purchased Greg Abel's personal 1% stake in BHE for $870 million, which brings Berkshire's ownership to 92%. I'll stay focused on the long-term strategic direction of BHE which earns it the top grade of Berkshire's companies. Grade: A+ Manufacturing Two out of the three manufacturing segments are holding up well. Industrial and building products both show higher sales and income compared to last year as well as sequentially vs. 1Q. In Industrial, Precision Castparts is finally growing thanks to a recovering aviation industry. Lubrizol has recovered from the weather-related shutdown and fire that hurt it in 2021. Marmon also grew in the first half despite a lower second quarter caused by exiting its rail car leasing business in Russia. Manufactured home seller Clayton Homes makes up almost half of the Building Products group and is growing sales and earnings both vs. last year and sequentially. The unit also finances these homes and is benefitting from higher interest rates with no sign of increasing defaults. While this group traditionally suffers in a recession, Berkshire is not seeing any impact yet. The Consumer manufacturing segment is now feeling the squeeze of inflation. Revenues are up but margins and earnings are lower. Footwear and apparel order volumes are down as retailers work off excess inventory. RV maker Forest River has had strong growth, but they are now seeing signs of a slowdown with higher gas prices. Berkshire Hathaway 2Q 2022 Form 10-Q With two out of three segments holding up well despite the changing economic environment, Manufacturing keeps its good grade from my last write-up. Grade: B+ Service and Retail The Service group and McLane had better sales than last year. Retail slowed down in 1Q, but improved again in 2Q. Margins are lower than last year but mostly flat quarter-to-quarter. As a result, total earnings of the group have improved sequentially. The Service group is seeing travel demand recovery in FlightSafety and NetJets. Berkshire Hathaway Automotive is the biggest business within Retail and is benefitting from higher prices and margins despite lower unit sales.

Jul 28

Berkshire Hathaway: A Stock To Navigate The Recession

The conglomerate intelligently deploys cash amidst the low valuation environment, contributing to its long-term returns. The company has outperformed the S&P 500 during recessionary periods in the US, and the recent deals are expected to drive Berkshire Hathaway's future profitability. Berkshire Hathaway is a financial fortress and earns a strong buy rating due to its near recession-proof and high-quality decentralized business model. Investment Thesis As high inflation deteriorates purchasing power and central banks indulge in aggressive momentary tightening, investors would be better off investing in high-quality stocks with solid balance sheets that are well-positioned to outperform the market despite the macro-economic headwinds. Berkshire Hathaway Inc. (BRK.A), (BRK.B) is a financial fortress and provides a compelling investment case due to its nearly recession-proof business model, with broad diversification and investments in companies that will continue to provide handsome returns on capital for investors. Most importantly, the company has a history of beating the market in periods of economic downturn, supporting the strong buy rating under the current economic environment. Data by YCharts Deploying Cash Amidst High Inflation Berkshire Hathaway's diverse business units contribute to long-term earnings power, and while supply-chain challenges and inflation risks remain, the company largely remained resilient during Q1 2022. Despite the macro headwinds, the conglomerate's operating profits stayed near-record levels. Operating earnings remained at about $7 billion during the latest quarter compared to a year ago. Earnings improved in every unit except Insurance, which was hurt by Geico, as auto repair costs hurt the entire industry. Earnings from Manufacturing, Service and Retail increased significantly by 15.5% during the quarter, offsetting most of the decline from the Insurance segment. While adhering to long-term principles, CEO Warren Buffett is more motivated to put cash to work in light of materially rising inflation. Although share repurchases slowed in Q1, the company has invested much more capital into acquisitions and equities in 2022 than in the previous two years. During the past few years, one of the primary contentions of investors had been Berkshire’s lack of capital deployment. The company was sitting on $146.7 billion of cash and short-term investments at the end of 2021; of this amount, $120 billion were held in U.S. Treasury bills, earning a minimal return for investors in a low-interest rate environment. Buffett even wrote a letter to shareholders lamenting the market's lack of good investment opportunities at the start of the year. Data by YCharts However, the narrative changed during Q1 2022 as the firm aggressively started deploying capital amid concerns of high inflation and the risk-off environment. Berkshire was a net buyer of equities in Q1 by almost $41.4 billion, including roughly $21 billion in Chevron (CVX) shares. In addition, the company took several new multibillion-dollar positions in equities as share buybacks slowed to $3.2 billion. As a result, the cash and short-term position declined from $146.7 billion at the end of Q4 2021 to $106.3 billion at the end of the most recent quarter. Not surprisingly, during the high valuation environment in 2020-2021, the company was a $4 billion net seller, but now the current rise in equity purchases reflects the firm’s view of the current valuations and bullish stance on the energy sector. Bullish on Energy Stocks During Q1 2022, Berkshire increased its holding in Chevron Corporation to 159M shares from 38.2M. The energy play has been one of the best-performing stocks this year, up nearly 25% YTD as oil remained on elevated levels due to supply constraints. In addition, the company sold pharma names AbbVie, Bristol-Myers, and Royalty, while increasing exposure to the energy sector as Berkshire Hathaway purchased about $27 billion worth of stocks of Chevron and Occidental Petroleum (OXY) this year. Not surprisingly, the conglomerate purchased another 4.3M shares of OXY earlier this month, pushing its total ownership nearly to 20%, fueling talks of a takeover. Thus, Berkshire Hathaway's near 20% stake in OXY is reflective of Buffett’s bullish stance on the energy sector, and there is a wide belief that Buffett is on his way to acquiring the firm and turning it into a ‘cash machine’ for his other investments, similar to what he did with BNSF railways in 2009. Occidental had bounced back from its financial woes after leveraging up with debt to pay $35.7 billion for Anadarko Petroleum right before the COVID-19 outbreak, which destroyed oil demand. A recovery in oil demand to peak levels has sped up debt repayment and reduced interest payments. In addition, the 20% stake will allow Berkshire Hathaway to use 'equity accounting' and report its share of OXY's profits, further boosting Berkshire Hathaway's earnings. Lastly, according to Refinitiv, Occidental's cash flow is expected to increase to $19.36 billion this year from $3.84 billion two years ago. Activision – A Merger Arbitrage Deal Berkshire has increased its stake in Activision Blizzard, Inc. (ATVI) to 64.3M shares from 14.7M shares at the end of 2021, and Berkshire Hathaway now holds 9.5% of the company’s stock. Shortly after Buffet's purchase, Microsoft announced its intention to acquire ATVI in a $68.7 billion deal earlier in January. However, despite the acquisition being approved by stockholders of Activision, there is still a cloud of uncertainty over the deal as the FTC has been investigating the deal due to antitrust issues. As part of its antitrust investigation, the agency is reportedly probing into the impact of the acquisition on competition between gaming consoles, the working conditions for game developers, and Microsoft's handling of consumer data if the deal is successful. Activision’s stock is currently trading 16% lower than Microsoft’s bid of $95 per share on concerns about the FTC probe. The aggressive purchase of Activision shares reflects Buffet's optimistic view of the merger, making it a merger arbitrage bet for Berkshire. Berkshire is Nearly Recession Proof A cursory analysis of Berkshire’s performance during recessionary periods reveals that the company has outperformed the S&P 500 during recessionary periods in the US. Although the company suffered during the financial crisis of 2008 and the more recent two-month recession period after the outbreak of COVID-19, the company’s stock price return has historically outperformed the market during the recessionary periods quite significantly, as evident from the table below. Data gathered from Yahoo Finance. (yahoo.com) To properly assess the case of Berkshire during a bear market, it is critical to analyze the company's operational results, which is far more important because those results are the true reflection of Berkshire Hathaway's material value rather than its market-based value based on short-term price fluctuations. Undoubtedly, strong diversification is one of Berkshire's strengths. But, overall, the manufacturing, service and retail companies are more vulnerable to a downturn in the economy and possible supply chain disruptions and inflation. However, Berkshire Hathaway has outperformed the market primarily because of its investments in companies whose operations remain largely unaffected by headwinds in the macro-environment.

Jul 19

Berkshire Hathaway Energy Continues Going Green

The U.S. is incentivizing companies like Berkshire Hathaway Energy to limit the use of coal and natural gas. BHE is encouraged to continue investing in renewables, given tax credits and projects from data center companies. Projections show that 52% of BHE’s electricity generation will come from renewables in 2030. Introduction My thesis is that Berkshire Hathaway Energy ("BHE") (BRK.A) (BRK.B) will continue increasing the percentage of their overall electricity generation that comes from renewables. Hydropower is a form of renewable power, but this article treats it separately, such that "renewable" in this context refers to green sources other than hydro such as wind and solar. The Numbers There is more agreement than ever that the world needs to limit the amount of electricity generation that comes from coal and natural gas. Here are the numbers from Our World in Data: global electricity generation (Our World in Data) The U.S. is incentivizing companies like BHE to limit the use of coal and natural gas. These incentives are working, as the EIA shows that coal has declined as a percentage of U.S. electricity generation from about 40% in 2012 to a forecast close to 20% for 2023: U.S. electricity generation (EIA) The BP (BP) Statistical Review of World Energy 2022 shows that 23.5% or of electricity in Europe was generated by renewables in 2021 [946.5 TWh out of 4,032.5 TWh]. Leading the way were the UK at 37.7% [116.9 TWh out of 309.9 Twh] and Germany at 37.2% [217.6 TWh out of 584.5 TWh]. BHE is on its way to more renewable generation like the UK and Germany. Combining wind, solar and geothermal, BHE has gone from 4% of their overall electricity generation coming from renewables in 2005 to 27% in 2021 per the BHE 2022 Fixed-Income Presentation: BHE renewables (BHE 2022 Fixed-Income Presentation) BHE is incentivized to continue investing in renewables, given tax credits and projects from data center companies. Projections show that 52% of BHE's electricity generation will come from renewables in 2030, and I believe these numbers are realistic. Berkshire can be somewhat reticent with tax planning details, but they have said on a summary level that they are one of the few energy companies in the U.S. that has a full enough tax appetite to properly use incentives. BHE's MidAmerican subsidiary is set to continue their fervid expansion on the wind side: MidAmerican investments (BHE 2022 Fixed-Income Presentation) The BHE 2022 Fixed-Income Presentation shows that MidAmerican had about 23,000 GWh of wind generation in 2021. This pencils out seeing as the 2021 annual 10-K shows MidAmerican wind capacity of 7,186 MWs which we multiply by 8,760 hours per year times 0.36 capacity times a MWh to GWh conversion factor of 0.001 to get a little under 23,000. The EIA shows that the U.S. as a whole had 380 TWh of wind generation in 2021, so I think it's cool to know that this BHE subsidiary had about 23 TWh which is around 6% of the nation's total. BHE has a history of signing renewable agreements for data centers. In April 2014, BHE announced that MidAmerican had reached an agreement to supply wind-sourced energy for a Google (GOOG) (GOOGL) data center in Council Bluffs, Iowa. In January 2017, BHE revealed that their NV Energy subsidiary and Apple agreed on solar projects to support Apple's data center in Reno. A May 2018 release from BHE describes a Utah data center for Meta (META) powered entirely by renewable sources. A January 2020 news post from DCD describes Google's Nevada data center project with NV Energy, saying a solar farm is the power source. Valuation There are limits to BHE's expansion. Wind and solar will continue to replace coal and natural gas, but hydro should remain in place. As such, I doubt BHE will get involved in hydro-heavy markets. 59.4% of Canada's electricity [380.8 TWh/641 TWh] comes from hydro. South and Central America are also phenomenal in terms of hydro; these areas generate 48% or 660.1 TWh out of 1,364.8 TWh of their total electricity from this source. Brazil is the biggest contributor in the area, where hydro is responsible for 55.4% of their electricity [362.8 TWh/654.4 TWh]. China is the leader in raw hydro TWh at 1,300, but it is only 15.2% of their overall electricity generation of 8,534.3 TWh.

Shareholder Returns

BRK.AUS Diversified FinancialUS Market
7D0.5%-0.009%-2.5%
1Y-2.0%-4.2%-23.2%

Return vs Industry: BRK.A exceeded the US Diversified Financial industry which returned -3.2% over the past year.

Return vs Market: BRK.A exceeded the US Market which returned -21.5% over the past year.

Price Volatility

Is BRK.A's price volatile compared to industry and market?
BRK.A volatility
BRK.A Average Weekly Movement3.0%
Diversified Financial Industry Average Movement5.2%
Market Average Movement6.9%
10% most volatile stocks in US Market15.6%
10% least volatile stocks in US Market2.8%

Stable Share Price: BRK.A is less volatile than 75% of US stocks over the past 3 months, typically moving +/- 3% a week.

Volatility Over Time: BRK.A's weekly volatility (3%) has been stable over the past year.

About the Company

FoundedEmployeesCEOWebsite
1998372,000Warren Buffetthttps://www.berkshirehathaway.com

Berkshire Hathaway Inc., through its subsidiaries, engages in the insurance, freight rail transportation, and utility businesses worldwide. It provides property, casualty, life, accident, and health insurance and reinsurance; and operates railroad systems in North America. The company also generates, transmits, stores, and distributes electricity from natural gas, coal, wind, solar, hydroelectric, nuclear, and geothermal sources; operates natural gas distribution and storage facilities, interstate pipelines, liquefied natural gas facilities, and compressor and meter stations; and holds interest in coal mining assets.

Berkshire Hathaway Inc. Fundamentals Summary

How do Berkshire Hathaway's earnings and revenue compare to its market cap?
BRK.A fundamental statistics
Market CapUS$591.28b
Earnings (TTM)US$11.70b
Revenue (TTM)US$289.37b

51.0x

P/E Ratio

2.1x

P/S Ratio

Earnings & Revenue

Key profitability statistics from the latest earnings report
BRK.A income statement (TTM)
RevenueUS$289.37b
Cost of RevenueUS$35.79b
Gross ProfitUS$15.73b
Other ExpensesUS$4.04b
EarningsUS$11.70b

Last Reported Earnings

Jun 30, 2022

Next Earnings Date

n/a

Earnings per share (EPS)7.97k
Gross Margin5.44%
Net Profit Margin4.04%
Debt/Equity Ratio25.4%

How did BRK.A perform over the long term?

See historical performance and comparison